The Federation of Small Businesses (FSB) has called on the Low Pay Commission (LPC) to consider whether forthcoming rises in the National Living Wage (NLW) rate may need to be put on hold if the economy cannot bear the pace of change.
The NLW rose in April 2017, and presently stands at £7.50. The government has pledged to bring the NLW to £9 per hour by 2020. However, the Office for Budget Responsibility (OBR) has estimated that this will ‘fall short’, and may only reach £8.75 an hour by this time. The FSB has stated that any risk to the UK economy should be ‘built into the next NLW increase’, which is scheduled for April 2018 – suggesting that the NLW should rise to no higher than £7.85 next year.
The FSB is concerned that the NLW does not currently take into account the state of the UK economy and inflationary issues, and has highlighted a ‘string of recent poor economic statistics and continued uncertainty’ as reasons for the LPC to consider delaying the planned rises.
The call followed the FSB’s publication of new research, which revealed that 64% of small firms affected by the NLW have recorded lower profits in order to meet the April 2017 rise, while 39% have had to put up prices to meet the demands of the NLW.
Commenting on the issue, Mike Cherry, FSB National Chairman, said: ‘Small employers have demonstrated their resilience in meeting the challenges set by the NLW, with many cutting their margins or even paying themselves less to pay their staff more.
‘In sectors where margins are tight, small firms are resorting to more drastic measures to cope with the NLW.
‘It’s vital that the NLW is set at a level that the economy can afford, without job losses or harming job creation. Cost pressures on small businesses are building, and with most recent economic indicators underperforming, we are now facing the reality that the NLW target may need to be delayed beyond 2020.’
The LPC is set to make its NLW recommendations to the government in the Autumn.